Opinion
CV155015244S
11-20-2018
Frederick B. WHITTEMORE v. Gregory L. VERESCHAGIN et al.
UNPUBLISHED OPINION
TAGGART D. ADAMS, JUDGE TRIAL REFEREE
I. Introduction
This case involves numerous loans and advances made by the plaintiff Frederick Whittemore to Gregory Vereschagin (GV) over a period of about four years. Additionally, it is alleged that other monies paid to GV were improperly transferred into a bank account in the name of GV’s wife Christina Vereschagin (CV). Practically all of the Whittemore loans remain unpaid. Whittemore alleges that GV repeatedly represented the loans would be repaid and were guaranteed by a business known as Ratex. The operative complaint asserts counts of fraud and unjust enrichment against GV and CV respectively, counts against GV for violations of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110 et seq. (CUTPA) a count alleging fraudulent transfer under the Connecticut Uniform Fraudulent Transfer Act, General Statutes §§ 52-552a et seq. and a count alleging civil theft pursuant to General Statutes § 52-564. Whittemore also seeks the costs of collection, including attorneys fees. The Vereschagins have generally admitted the allegations of the amended complaint as to amounts of money borrowed, but denied in many respects, the characterization of their activities as fraudulent, theft, deceptive, or an unfair trade practice.
GV and CV are well educated; both have MBA degrees from Harvard. GV has held a number of important positions with General Electric and Westinghouse since 1982. CV has primarily been a homemaker during that period. At least in recent years, the Vereschagins have been chronically short of money. They presently do not own a home and have relied on loans and advances from investors such as the plaintiff. Perhaps unfortunately for them, the Vereschagins have represented themselves in this case.
II. Prior Proceedings
Whittemore’s second amended complaint is the operative pleading in this case. That complaint (Dkt. Entry [DE] 138.00) was requested to be filed by this court immediately after the trial of the case in order to clarify the issues, and to specify which previous claims against the Vereschagins had been withdrawn. Before the trial plaintiff moved for summary judgment on certain claims, and the Honorable David Tobin (J.T.R.) granted judgment on counts one, two, three and ten, finding as follows:
Count One: GV indebted to plaintiff in the amount of $296,226.66 with interest at 6% from January 31, 2013, plus costs of collection, including reasonable attorneys fees. Based on a promissory note dated January 31, 2013.
Count Two: GV indebted to plaintiff in the amount of $272,832.99 with interest from February 17, 2015 at 6%. Based on second loan from plaintiff.
Count Three: GV indebted to plaintiff in the amount of $39,855.42. Based on a series of advances to GV in 2015.
Count Ten: GV indebted to plaintiff in the amount of $2,588 with interest at 6% from September 15, 2015.DE 122.01. See calculations stipulated to by the parties at DE 127.00; see also calculations stipulated to by the parties and ordered by Judge Tobin on March 14, 2018 wherein Judge Tobin ordered that plaintiff was entitled to costs of collection, including a reasonable attorneys fee on the claims under Count One. DE 132.01. The costs of collection for claims under Counts Two and Three were part of the subject matter of the court trial before this court in May 2018.
On September 24, 2018 the Honorable A. William Mottolese, on motion by the plaintiff, entered judgment against GV on Count One for $296,226.66 plus six percent interest through September 15, 2018, and costs of collection; on Count Two for $272,831.99 and six percent interest to date of judgment and on Count Three ($39,855.42). Judge Mottolese did not determine a postjudgment rate of interest.
Prior to the trial of this case the unresolved claims made by Whittemore included claims of fraud against GV pertaining to the amounts loaned to him as alleged in Counts One through Three. These fraud claims are made in Counts Four, Six and Eight. There are also CUTPA claims made associated with the loans alleged in Counts One and Two, and they are set forth in Counts Five and Seven. Count Nine was withdrawn. Count Ten alleges GV borrowed and did not repay $29,000 or more on Whittemore’s American Express card, and Count Eleven asserts a civil theft claim against GV pursuant to General Statutes § 52-564 based on the American Express card use. Counts Twelve and Thirteen were withdrawn. Count Fourteen asserts an unjust enrichment claim against CV. Count Fifteen was withdrawn, and Count Sixteen asserts fraudulent transfer claims against GV and CV pursuant to the Connecticut Uniform Fraudulent Transfer Act, General Statutes § 52-552a et seq.
III. The Trial
The trial on the remaining counts in this case took place before this court on May 22 and 23, 2018. Counsel for the plaintiff and the Vereschagins filed post-trial briefs on July 25, 2018. The withdrawal of certain counts and the remaining counts against the Vereschagins were reviewed by this court with the self-represented defendants prior to the taking of evidence. Tr., 5/22, 16-19.
References to the trial transcript will be to either the 22nd or 23rd day of May 2018 transcript followed by the number or numbers of the relevant pages.
At the outset of the trial Exhibits 1, 2 and 3 were admitted into evidence in support of the plaintiff’s case. These were a promissory note signed by GV and a compilation of advances to GV from the plaintiff between January 22, 2011 and July 25, 2015. Tr. 5/22, 29-30. The advances were not contested by the defendants and are the basis for the judgments already entered.
Mrs. Vereschagin (CV) was called as the plaintiff’s first witness. She graduated from Georgetown University as an economics major prior to obtaining her Harvard degree, and she married GV in 1981. She has not been employed since 1982. Tr., 5/22, 38. She and her husband owned a home in New Canaan, Connecticut in the 1990s, then rented residences in New Canaan, Pound Ridge, NY until 2011, rented at extended stay locations in Shelton and Norwalk, and most recently CV and GV have lived in Airbnb residences in Newtown and Wilton. Id., 40-43. CV testified that since 2011 GV had been working with one "Mr. Meidar" and an individual named Bernd Adam. With the latter GV was trying to raise money for a company named Ratex. CV was not aware whether GV received any money from Ratex. Id., 45-49. Since 1982 CV has had no source of income except funds received from her husband. Id., 38.
Although she did not have a bank account at the time of trial, CV’s most recent bank account was a savings and checking account at Bank of America in her name. GV’s name was not on that account; CV testified her husband had some "financial difficulties," and GV had asked her to open the account. Id., 49. She testified she never deposited any monies into the accounts and, with relatively minor exceptions involving on-line purchases, made no other transactions in them and that "my husband managed the account." Id., 50-51. Her husband was free to use and make withdrawals from the account with an ATM card. Id., 53. He also made deposits into the account, the majority of which were coming from Mr. Meidar. Exhibits 15-22 and 32-44 are monthly statements reflecting the status of CV’s Bank of America accounts from January 11, 2016 to September 15, 2017 reflecting money earned by her husband for work done for Meidar. Id. 76-77; 100-02. CV testified her husband received and opened the statements from Bank of America. Id., 104. She explained that she, GV and their family spent a few days over Christmas in Vermont in 2016. Ex. 36; Tr. 5/22, 112-14.
CV testified she was aware of loans from Whittemore but was not sure when she became aware. Id., 111. She knew her living expenses were being financed for a period of time by Whittemore. "Whittemore agreed to help my husband [because] we had no source of income" and because Whittemore had been an investor in the company that was a predecessor to Ratex in Germany. Id., 117. There was no other source of income between January 2011 to the end of 2015. Id., 117-19, all of the money received was from the plaintiff and was used to pay GV’s and CV’s expenses.
Mrs. Vereschagin testified that the vast majority of transactions in her Bank of America accounts were made by Mr. Vereschagin for the first several months of their existence in 2016. Except for a couple of online purchases by her and several deposits in the account by the Vereschagin’s son Oliver, the transactions in the accounts were made by or for Mr. Vereschagin. Exhibits 15 and 16; Tr. 5/22, 60-69. These included two $20,000 payments from Meidar for consulting work by GV involving companies that might be invested in, or assisted by, Meidar. Id., 68-69. Mrs. Vereschagin hoped the money would pay off debts, but the $20,000 deposits did not represent money she earned. Id., 70. After noting several withdrawals in March 2016 from the account at an ATM, CV testified that these would have been done by GV since she did not use an ATM card to make withdrawals. Id., 72.
In all, CV’s testimony was generally straight forward and credible. She testified that she and her husband needed a bank account. GV had financial difficulties so "we didn’t think he would be able to open an account himself.’ She was aware that money was owed to Whittemore, and she was aware that money was going into her Bank of America account.
The plaintiff’s younger son, Edward Whittemore, a Connecticut attorney, testified briefly to the effect that he and his brother held a power of attorney over Frederick Whittemore’s legal and medical affairs as a result of the plaintiff suffering a serious stroke in 2015, and they had engaged Attorney Durkin to initiate and prosecute this case against the Vereschagins. The engagement letter with Durkin is Exhibit 45., Tr. 5/22, 137-44. The Whittemore family got what they wanted: an aggressive, but fair and meticulous, lawyer.
GV testified at some length through direct examination by Attorney Durkin and by narrative testimony while presenting the defendants’ case. In general, the court, with exceptions to be noted, found his testimony to be credible. From approximately 2006 through 2016 GV worked with one Bernd Adam who had founded a company known as Erames. Erames had outside investors, one of which was the plaintiff Whittemore, who had invested about $750,000 in Erames, before GV met him. Tr. 5/22, 164-65, 197. Erames went into bankruptcy in 2010; Whittemore lost his investment. Id., 166. Adam bought the Erames intellectual property with bankruptcy court approval. One of Adam’s goals was to try to return some or all of Whittemore’s investment through warrants in a new company known as Ratex using the Erames intellectual property which involved a system of rating the strength of different investments by identifying "hidden risk" in corporations. Tr. 5/22, 162-67; Tr. 5/23, 41. From 2006 to about 2010 when it was liquidated, GV was paid living expenses by Erames, and then subsequently by Ratex. Id., 166-73. During this period GV testified he developed a substantial amount of software to establish the viability of Ratex’s investment strategy. According to GV, Adam’s efforts to raise capital for Ratex continued until 2017 without any substantive long term success. See e.g., Id. 178-79.
Whittemore loaned money to GV during this period, and the latter termed these loans as providing capital to Ratex because the payments allowed GV to continue to work on the Ratex intellectual property. Id., 174. The record contains as exhibits at least two communications from Adam to Whittemore regarding the latter’s loans to GV. On March 7, 2013 Adam emailed the plaintiff the following message:
Dear Fred,
You have requested that Ratex will confirm that you will be repaid for the disbursements that you have made to Gregory Vereschagin on his behalf. The maximum outstanding balance to Mr. Vereschagin is U.S. $350,000. Ratex expects to receive working capital funding during March 2013. The amount of funding is expected to be $5 million. When Ratex has received $5 million, you will be paid $150,000 within five business days once funds are confirmed in the Ratex bank account. If the funding amount is less than $5 million then you will be paid 3% of the funding amount received. For the balance of the funds loaned to, or disbursed on behalf of Mr. Vereschagin, Ratex will pay you 2% of the funds received in excess of $5 million up to the amount of the actual outstanding balance. Should there be an outstanding balance in eighteen months from this date, Ratex will pay to you the outstanding balance including all accrued interest up to a maximum of U.S. $350,000.
Best regards,
BerndEx. 8. About a year later Adam sent Whittemore another letter, somewhat less optimistic, committing Ratex to repay $350,000 of the loans to GV when "substantial equity funding" is obtained and describing potential sources for such funding. Exhs. 9, 10. When asked at trial whether there was any written guarantee to Whittemore that Ratex would pay off the loan GV pointed to those communications. Tr. 5/22, 176. In hindsight, there was no substantial equity funding of Ratex from any source. Id., 176-79, 184, 189-90. Therefore, the Whittemore loans remained unpaid.
GV testified that the investment research products able to be supplied by the Ratex technology were "much better" than available products and of a "unique character" so that Whittemore "agreed" that the development of the Ratex product "required the fulltime dedication of Mr. Adam and myself." Tr. 5/22, 198. Therefore, the plaintiff decided to provide loans to GV "to support my living while we tried to get Ratex off the ground." Id., 198-99. GV described Whittemore, a retired partner at Morgan Stanley, as a "very active ... investor ... in a wide number of things" ranging from golf courses to Broadway shows. Id., 202, Tr. 5/23, 40. Indeed, Whittemore extolled his own experience of investing in "startups" and in the middle of 2014 wrote a very strong letter in support of the "particularly impressive" technology used by Ratex "one of the most innovative companies that I have worked with." Ex. A.
IV. Discussion
As related above Whittemore has already obtained judgment against GV for well over half a million dollars, not including interest. The plaintiff now seeks substantial additional money damages against GV based on attorneys fees and costs of collection, and other damages on theories of fraud, fraudulent transfers, civil theft and CUTPA violations, as well a claim against CV for unjust enrichment. The court will discuss each of these claims. In determining the merits of the various claims and defenses the court has reviewed and considered the trial transcripts, all exhibits entered into evidence, as well as the parties’ memoranda.
A. Costs of Collection of Sums Due Under Count Two and Three
At trial GV conceded the amounts he owed the plaintiff under Count Two and Three should include associated attorneys fees and costs of collection. Tr. 5/22, 226. According to an affidavit by Attorney Durkin the parties stipulated his attorneys fees and costs through August 15, 2017 were $27,019.70 and $2,485.77, respectively. Ex. 23. Additional attorney fees of $32,016 and costs of $2,805.23 were incurred through July 2018 for trial preparation, trial and past work. DE 141.00. Because Judge Tobin found for the plaintiffs on Counts Two and Three prior to trial, only the amounts through August 15, 2007 are awarded.
B. Claims of Fraud
Whittemore alleges three claims of fraud against GV essentially contending that the latter’s loan defaults were preceded by representations by GV that the loans would be repaid that were reckless and false and known by GV to be false with the intention to deceive the plaintiff into lending money. See Second Amended Complaint (DE 138.00) Counts Four, Six and Eight. The critical elements of a fraud claim are (1) making a false representation as a statement of fact; (2) the statement was untrue and known to be untrue or made with reckless disregard for the truth; (3) the statement was made for the purpose of the recipient acting on it, and (4) the recipient did so act. Updike Kelly & Spellacy, P.C. v. Becket, 269 Conn. 613, 643 (2004). The first three elements must be proven by clear and convincing evidence a higher standard than the normal civil burden of proof requiring proof by a preponderance of the evidence. "Clear and convincing evidence" requires the trier of fact to find that the facts found are "highly probably" true, or that there is a substantially greater probability that they are true than false. See Tait & Prescott, Tait’s Handbook of Connecticut Evidence (5th Ed. 2014) § 3.5.2; Dalia v. Lawrence, 226 Conn. 51, 78-79 (1993); Kilduff v. Adams, Inc., 219 Conn. 314, 327-30 (1991) (dissenting opinion). The fourth element may be proven by a preponderance of the evidence. Connecticut Judicial Branch, Civil Jury Instructions, 3.16; Kilduff v. Adams, Inc., supra, 219 Conn. 330.
The court concludes that Whittemore has not proven the fraud claims against GV by the applicable standards. The evidence shows that he was satisfied to have GV continue to develop the Ratex investment product and more than satisfied that GV, unwisely it seems, was willing to accept payments in the form of loans rather than salary or other form of actual and unreturnable compensation. In effect, GV was working to enhance Whittemore’s interests for free. GV testified credibly that Fred Whittemore knew and agreed that the "optimal strategy" for the development of the Ratex product and business "required the full time dedication of Mr. Adam and myself." Tr. 5/22, 198. Further, Whittemore "was completely aware" that GV "had no assets and no ability ... to support myself without something that was a kin to ... a salary ... or funds coming in that I could use to support the living expenses." Id. This point was emphasized when GV explained in testimony (also cited by plaintiff’s counsel) that Whittemore knew GV did not have the assets to personally write a check to repay the loans. Id., 218. The assurances GV gave Whittemore was if Ratex got capital funding that would be the source of repayment. Id. GV also testified credibly that Whittemore knew GV didn’t have the assets to ... cover any part of these expenditures. Tr. 5/22, 209-10. In addition, if there was any activity even akin to fraud, it was Adam’s communications to Whittemore about Ratex’s prospects. Exhibits 8-10. In his post-trial brief the plaintiff focuses on what he assumes to be GV’s knowledge of Ratex’s inability to raise working capital. This assumption is unfounded in this court’s view and belied by GV’s and Ratex’s continued efforts toward that goal and especially by GV’s continued work on improving the Ratex investment product. Whittemore’s brief also quotes GV to the effect that the assurances he gave the plaintiff "was that we intended to achieve funding for Ratex and that ... would be the means for him to be repaid." Tr. 5/22, 209-10. All in all the court is of the firm conviction that the elements of a fraud claim have not been proven against GV. The court also notes that plaintiff has already been, and will be, successful in obtaining judgment including awards of attorneys fees, so success on the fraud claims would be duplicative.
C. Civil Theft
General Statutes § 52-564 provides "Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." The burden of proof for this claim by Whittemore in Count Eleven is preponderance of the evidence. Stuart v. Stuart, 297 Conn. 26 (2010). This provision, often described as statutory theft, is "synonymous with larceny [as provided in] General Statutes § 53a-119." Hi-Ho Tower, Inc. v. Com-Tronics, 255 Conn. 20, 44 (2000).
Both Counts Ten and Eleven involve stipulated non-reimbursement by GV of charges on Whittemore’s American Express card of $2,588.40. See Ex. 23. Judgment may enter for the plaintiff in that amount pursuant to Count Ten. Count Eleven seeks treble damages pursuant to Section § 52-564 for this failure to pay. Giving credit to the fact that GV stipulated prior to trial that he owed this amount this court determines there was no larcenous intent, other than GV’s impecunious status, and the court declines to impose treble damages.
D. Unfair Trade Practices
Counts Five and Seven of the operative complaint are claims against GV for violations of the Connecticut Unfair Trade Practices Act (CUTPA). It is not necessary for Whittemore to prove an intent to deceive to establish a CUTPA violation. Willow Springs Condominium Association, Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 43 (1998). The court finds that GV has violated CUTPA. Attorneys fees and punitive damages may be awarded under CUTPA, but the court will not make such an award in this instance, because such fees and damages are duplicative.
E. Unjust Enrichment of CV
As noted earlier there was evidence at trial that CV was aware of loans by Whittemore during her marriage to GV and that at least some of these monies were utilized for their living expenses. There was also some sparse evidence that money that went into her bank account was spent on personal items for her. Count Fourteen asserts a claim of unjust enrichment against CV.
The Connecticut Appellate Court has prescribed the elements of an unjust enrichment cause of action as: (1) that the defendants were benefitted; (2) the defendants unjustly did not pay the plaintiffs for the benefit; and (3) the plaintiffs were injured by the failure of payment. American Express Centurion Bank v. Head, 115 Conn.App. 10, 16 (2009). [citing Vertex, Inc. v. Waterbury, 278 Conn. 557, 573 (2006) ]. In this case the evidence establishes that CV was benefitted by the monies loaned by the plaintiff and which went into her bank account; CV did not repay the benefits to the plaintiff’s detriment. GV testified he used 90-95% of the loan amounts for CV’s and his living expenses. In part based on plaintiff’s counsel suggestion, and with some reluctance, the court enters judgment against CV for one-fifth of the amounts adjudged against GV in Counts One, Two and Three (that amount is $121,782.81) with CV’s liability to be joint and several with GV.
F. Fraudulent Transfers
Count Sixteen asserts a claim against both GV and CV under the Connecticut Uniform Fraudulent Transfer Act, General Statutes §§ 52-552a et seq (UFTA) arising from the transfers of monies received by GV into CV’s Bank of America accounts. A fraudulent transfer is defined by the UFTA as a
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
General Statutes § 52-552f(a). The evidence in this case shows that GV’s transfer of funds received from Meidar to CV’s bank accounts were made without receiving equivalent value in exchange. The amount of these transfers are $207,394.72 and are substantiated in the Bank of America monthly statement exhs. 17-22, 32, 34-36. There are twelve such transfers, ten of which are in the amount of $20,000, on of $6,000 and one of $1,394.72.
It is this aspect of the evidence that the court concludes GV’s testimony was not credible. In his pre-trial deposition GV testified he did not maintain a bank account "because I did not want anything to be attached." Tr., 5/23, 16; Ex. 25, p. 70. He then changed his answer to "it was a matter of convenience," Id., Subsequently, he testified, in response to why the Meidar payments for his services were going into CV’s bank account: "she is not a party to the lawsuit, so if there is something that happens, it is between me and Whittemores ... she has nothing to contribute to this or any bearing on this:. Tr. 5/23, 17; Ex. 25, p. 71.
In the normal course transfers of assets between spouses occur often and are not inherently suspicious. Nevertheless, the critical evidence in this case strongly supports the proposition that the deposits into CV’s account were fraudulent transfers as to the plaintiff within the meaning of UFTA. First, the debt to the plaintiff existed before the transfers. Second, GV retained actual control of the funds in CV’s account. Third, the transfers were not revealed to the plaintiff until well after this lawsuit, including a prejudgment remedy, was served. Exhibits 13 and 14; indeed, GV was served with process in this action two weeks before the CV bank account was opened and seven weeks before the first Meidar payment was transferred to the CV bank account (the motion to cite CV into the action was not made until November 2, 2016). DE 110.00. Fourth, the transfers appear to include most, if not all, of his assets except GV’s car.
V. CONCLUSION
The court enters the following judgments. These judgments are in addition to those entered by Judge Mottolese as referenced in n.1.
A. The plaintiff is awarded attorneys fees and costs of collection associated with the prosecution of Courts Two and Three in the amount of $27,019.70 and $2,485.77 respectively. See Section IV. A. herein.
B. Judgment is entered for the defendants on Counts Four, Six and Eight.
C. Judgment is entered for the plaintiff on Counts Five and Seven, but no additional damages are awarded.
D. Judgment is entered for the plaintiff and against GV on Count Ten in the amount of $2,588.40.
E. Judgment is entered for the defendant on Count Eleven.
F. Judgment is entered for the plaintiff on the Count 14 against the defendant CV jointly and severally with GV in the amount of $121,782.81.
G. Judgment is entered for the plaintiff and against GV and CV jointly and severally in the amount of $207,394.72.
H. Interest on the judgments entered in this decision shall accrue at the rate of six percent annually from the date hereof.